Minimizing Liability in Towing Contracts: How Low Can You Go?

Contrary to popular belief, a contract of marine towage does not create a bailment. Case law has long established that he owner of the boat being towed is not a bailor, and the towboat operator is not a bailee.

In the event the towed vessel is returned to its owner at the end of the tow in damaged condition, the owner of the tow is not entitled to recover damages from the towboat operator simply by proving that its vessel was undamaged at the commencement of the tow, but was returned in damaged condition. Before the owner of the tow may recover damages from the towboat, he must carry the burden of proving that the towboat was negligent. According to the leading Supreme Court case of Stevens v. The White City (1932), the towboat has “the duty to exercise such reasonable care and maritime skill as prudent navigators employ for the performance of similar service.”

The absence of a bailment relationship is a great benefit to the towboat operator. This makes it more difficult for the owner of a damaged tow to establish the liability of the towboat (especially since he probably wasn’t around when the damage occurred). However, this benefit is counterbalanced by another policy of maritime law, which prohibits marine towing companies from including exculpatory clauses in their towing agreements. Such an exculpatory clause would require the owner of the towed vessel to hold the towboat harmless and to indemnify the towboat operator from claims made as the result of damages sustained by the tow or by third parties during the course of the tow. The net result is to shift liability for all damage claims from the towboat to the tow.

Such exculpatory clauses are typically found in “take it or leave it” contracts (also known as contracts of adhesion). Such contracts are usually the product of unequal bargaining power. The owner of a vessel needing a tow may have no choice but to sign a towing contract containing an exculpatory clause if all of the towboat operators include such a clause in their standard contracts. The inclusion of such clauses in marine towing contracts was a common practice which finally caused the Supreme Court in Bisso v. Inland Waterways Corp. (1955), to invalidate exculpatory clauses in all marine towing agreements. The Court held that such clauses violate public policy and are invalid and unenforceable, since towboats receiving the benefit of such exculpatory clauses are more likely to act negligently when they do not have to pay the damages resulting from their wrongdoing. The Court also felt that boat owners needing towing services are at a disadvantage to the towing companies, which hold superior bargaining power. The rule of Bisso, invalidating exculpatory clauses in marine towing contracts, remains intact today.

Creative attorneys have attempted to circumvent the Bisso rule by drafting towing contract clauses that, for purposes of liability, would make the crew of the towboat the employees of the tow. Such end-runs around Bisso have been struck down by the courts.

There are, however, two ways in which towboat operators may dilute the effects of Bisso. The first method is to adopt a scheme of alternate rates. This would give the owner of the tow a choice between paying the full rate for the towboat’s unlimited liability, and of paying a reduced rate in return for a reasonable limitation upon the towboat’s liability. This method is somewhat risky, however, since it has only been approved by one federal circuit court (the Sixth Circuit).

The second method is for the towboat operator to require the owner of the tow (or its cargo) to procure insurance, which names the towboat as an additional insured, and which waives any subrogation against the towboat. In this manner, if an accident occurs, the towboat will also be insured, and the insurer will not have the right to recover any payments made under the policy of insurance from the towboat – even if the tower’s negligence caused the loss! This end-run around the Bisso rule has been approved by many courts and is in wide use by towing companies today. The end result is the same as if an exculpatory clause had been included in the towing contract.

In summary, it should be remembered that exculpatory clauses in marine towing contracts are “not worth the paper they are written on.” There is no substitute for diligence and the exercise of due care during all towing operations. However, before engaging in a high risk tow, it would be wise for the prudent marine towing company to take the added precaution of including in the towing contract a requirement that the owner of the tow procure insurance, name the towing company as an additional insured, and waive the insurer’s right to subrogation.